CBO Releases New Cost Estimates for PPACA

New spending projections on the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) have been released by the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) now that the Supreme Court upheld the constitutionality of the Act on June 28. In addition to the new projections, the CBO has also put together spending projections should H.R. 6079, the Repeal of Obamacare Act, as passed by the House of Representatives on July 11, 2012, actually repeal PPACA. H.R. 6079 would repeal PPACA, with the exception of one subsection that will have no budgetary effect.

Cost of Current Provisions. Although the Supreme Court’s decision left intact all parts of the insurance provisions, it also basically made the expansion of the Medicaid program under PPACA a state option, rather than mandatory for states that wanted to continue receiving federal matching funds for any part of their Medicaid program.

Given the changes in Medicaid, the CBO and JCT now estimate that the insurance coverage provisions of PPACA will have a net cost of $1,168 billion over the 2012–2022 period, compared with $1,252 billion that the CBO projected in March 2012 for that same 11-year period, for a net reduction of $84 billion. The CBO noted that the figures do not include the budgetary impact of other provisions of PPACA, which are projected to reduce budget deficits overall. Included in this amount is the gross costs of $1,683 billion for Medicaid, CHIP, tax credits, and other subsidies for the purchase of health insurance through the newly established insurance exchanges plus any associated costs, and tax credits for small employers. The gross costs include spending of $642 billion for Medicaid and CHIP, which CBO stated is $289 billion less than the March 2012 projections, and $1,017 billion for exchange subsidies, which is $210 billion more than the March 2012 projections. Overall, gross costs are estimated by the CBO to be $79 billion less than what was estimated in March 2012.

HR 6079 Increase. In repealing PPACA, H.R. 6079 would restore provisions of law modified by that legislation as if PPACA had never been enacted. Among other things, H.R. 6079 would: (1) eliminate the requirement that most legal residents of the United States obtain health insurance or pay a penalty tax; (2) eliminate insurance exchanges through which certain individuals and families will receive federal subsidies to substantially reduce the cost of purchasing health insurance coverage; (3) significantly reduce eligibility for Medicaid for residents of states that will choose to expand their programs under the ACA; (4) increase the rate of growth of Medicare’s payment rates for most services (relative to the growth rates projected under current law); (5) eliminate the excise tax on health insurance plans with relatively high premiums; (6) eliminate certain taxes on individuals and families with relatively high incomes; and (7) make various other changes to the federal tax code, Medicare, Medicaid, and other programs.

CBO’s estimate on HR 6079 reflects the spending and revenue projections in the CBO’s March, 2012 baseline as adjusted to take into account the effects of the recent Supreme Court decision. Assuming that H.R. 6079 is enacted at the beginning of fiscal year 2013, CBO and JCT estimate that the direct spending and revenue effects of enacting the legislation would cause a net increase in federal budget deficits of $109 billion over the 2013–2022 period. It is estimated that H.R. 6079 would reduce direct spending by $890 billion and reduce revenues by $1 trillion between 2013 and 2022, thus adding $109 billion to federal budget deficits over that period.

It is important to note that these updated estimates for the coverage provisions do not include the budgetary impact of other provisions of PPACA, so they are not comprehensive of the Act as a whole. Similarly, the estimated budgetary effects of enacting H.R. 6079 are very close to an estimate of the budgetary effects of the ACA with the signs reversed. The CBO noted that some provisions of PPACA cannot be retroactively adjusted, andit anticipates that some of the changes induced by PPACA in how public and private health insurance and health care programs are administered would be sustained under H.R. 6079.